Performance Gaps Among Large Law Firms Narrowing — Thomson Reuters Legal Executive Institute Study

EAGAN, Minn., June 28, 2018 — Firms in the highest-performing segment of the market may be experiencing “the strong magnetism of industry means” pulling them back towards market averages, as their performance gap over the rest of the market has narrowed somewhat.  That’s among the findings of The Dynamic Law Firms Study: A 2017 Year-End Update from the Thomson Reuters Legal Executive Institute.

The new report updates last year’s study, which identified two groups of large law firms through Peer Monitor data: Dynamic and Static – representing the highest- and lowest-performing quartile of firms during the 2014-2016 period.

Looking at the same groups of firms from the previous study, the updated report found that the profitability advantage of the Dynamic firms narrowed slightly in 2017, as Static firms may be adopting some of the best practices from the Dynamic firms. The Dynamic firms’ advantage in average profit margins compared with the Static firms shrank from about four-and-a-half percentage points to three percentage points.

While the Dynamic firms maintained a strong average profit margin, it slipped slightly from 38.0% to 37.7% in 2017. Meanwhile, the Static firm segment managed to grow their average profit margins from 33.5% to 34.5% -- while an improvement, it still remains lower than the average margins these firms saw in 2015.

The Static group improved their profitability through a variety of factors, including improved collection realization, and better relative productivity through restrained headcount growth.

“The battle for market share is intensifying and firms are increasingly emulating the top-performers to slightly narrow the profitability gap,” said Mike Abbott, vice president, Client Management & Global Thought Leadership, Thomson Reuters. “In an increasingly competitive market, Peer Monitor data suggests that strategies such as focusing on realization, controlling headcount, and increasing investments in productivity-enhancing technologies and areas such as business development and marketing, can help position firms for future success.”

The Dynamic Law Firms Study: A 2017 Year-End Update can be downloaded at www.legalexecutiveinstitute.com/dynamic-law-firms-study-2017-update/.

For more information on Peer Monitor, visit legalsolutions.com/peer-monitor.

Thomson Reuters

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